Borrowers falling deeper in debt

Those Canadians who have borrowed the most are falling deeper into the hole, according to new research out this week by CIBC World Markets Inc.

The report noted that those with a greater than 1.6 debt-to-gross income ratio represented 73% of all household debt in Canada. That debt comes from 34% of all Canadian households, said the CIBC research. Overall, the debt-to-income ratio is 151% nationally, not far from the ratio of 160% in the U.S. before the housing market there collapsed.

The recent rise in that figure in Canada was enough to spark a warning in October from the International Monetary Fund to halt any increase in the ratio.

“Our new analysis found that all of the rise in debt since 2007 has been driven by borrowing from those with a high debt-to-gross income ratio,” said Avery Shenfeld, the chief economist at CIBC. “The growth in debt-to-income ratios has come from a piling on of debt by those with high debt burdens, rather than form the less indebted households getting drawn to the punchbowl by the promise of low rates.”

Much of that debt burden comes from B.C., Alberta, and Ontario, said Shenfeld, where housing is most expensive.

Another trend is that the debt burden seems to be affecting Canadians later in age. Of those above the age of 45, the share of the overall debt burden has climbed from 36% in 2007 to 44% in 2011.

“Canadians nearing retirement who should be in their prime savings years are instead getting themselves deeper into debt,” said Shenfeld. “We are already seeing an uptrend in bankruptcies for those 50 and over, but the more material impact will be that this group’s ability to spend could be severely squeezed upon retirement.”